Higher commodity costs and devaluation-driven cost increases have been blamed by US food giant Kraft Foods for disappointing thirds quarter results. The company, which owns numerous confectionery brands, reported an overall decline in gross profit of 1.7 per cent, while operating income was down 9.6 per cent.
"Our third quarter results reflect a continuation of the challenges we faced in the second quarter," said Roger K. Deromedi, Kraft Foods co-chief executive officer. "Volume growth from ongoing businesses of 1 per cent was below our expectations as solid gains in several North American businesses and Asia Pacific were partially offset by continued weakness in the US cookie category and the impact of the summer heat wave in Europe on our chocolate and coffee businesses."
Biscuits, snacks and confectionery volume was down 3.9 per cent, of which 0.7 percentage points reflects the impact of the confectionery divestiture in 2002. The remainder of the decrease was due primarily to lower shipments of cookies.
Net revenues declined 2.2 per cent as lower volume and higher promotional spending more than offset the impact of price increases taken earlier this year on cookies and crackers. OCI was down 19.3 per cent to $230 million due to lower volume, higher commodity costs and increased promotional spending in biscuits to improve share trends, partially offset by pricing and synergy savings.
Biscuit volume declined due primarily to continued category weakness in cookies. In crackers, both consumption and share improved versus prior year, supported by the introduction of Ritz Chips. In snacks, shipments increased double digits as the nuts category benefited from growing consumer recognition of nuts' health benefits. Confectionery volume was also up, led by higher shipments of Life Savers candies and Altoids mints.
In Europe, the Middle East and Africa specifically however, volume decreased 1.4 per cent. Ongoing volume was down 0.4 per cent, as acquisitions and growth in Poland, Russia, Romania and Ukraine were more than offset by declines in European chocolate and coffee.
In the third quarter, the company spent approximately $45 million of the previously announced investment programme, primarily in September. In cheese, cold cuts and crackers, share and consumption trends showed solid improvement in September. In coffee, third quarter volume met expectations due to strong non-measured channel growth and an improvement in consumption, while shares declined due to significant competitive activity.
"The initial phase of our investment programme in focus categories is showing early signs of meeting our objectives," said Betsy D. Holden, co-chief executive officer of Kraft Foods.
"We are encouraged by our September share and consumption trends in cheese, cold cuts and crackers. However, we have encountered heightened competitive activity in coffee and continued category softness in cookies. While we believe we have the right programmes in place to drive top line growth through consumption and share trend improvements, we need to see ongoing progress throughout the fourth quarter."
Kraft Foods is the largest branded food and beverage company headquartered in the United States and the second largest worldwide. Kraft Foods markets many of the world's leading food brands, including Kraft cheese, Jacobs and Maxwell House coffees, Nabisco cookies and crackers, Philadelphia cream cheese, Oscar Mayer meats, Post cereals and Milka chocolates, in more than 150 countries.